January fuel price report

Petrol up 1p and diesel up 0.75p a litre over the month – more to come

20 January 2012

Petrol up 1p and diesel up 0.75p a litre over the month – more to come

Both petrol and diesel pump prices in the UK have started the new year with a more than 1p-a-litre increase over the past fortnight, according to January’s AA Fuel Price Report. While average petrol prices are 4p shy of the all-time high, diesel is within 1.5p of the record *.

A litre of petrol now averages 133.54p a litre, compared to 128.14 a year ago (2010, mid Jan: 111.80p). Diesel, now at 141.90p a litre, cost 132.53 a year ago (2010, mid Jan: 111.91p).

A 7% rise in the NW Europe wholesale price of petrol and a weaker pound in early January points to a further 1p rise. If it happens, a 2p rise this month will add £4.25 to the monthly (£51 / year) cost of a family with two petrol cars and wipe out much of the savings from recent cuts in domestic energy bills.

Inflation

Last month’s fall in the inflation rate to 4.2% was in part due to a half penny fall in the price of petrol and diesel in December. However, it masks the fact that petrol prices are around 20p a litre and diesel 30p a litre higher than in 2010, with wage rises failing to keep pace.

Inflation figures could have been even better had the 5p-a-litre fall in the wholesale cost from the middle of September, when UK petrol averaged 135.9p a litre, been passed on more widely. In the end, falling prices bottomed out at 132.3p at the turn of the year.

Postcode lottery

The blame rests in the patchwork of towns with competitive fuel pricing in some and not in others. It is exemplified by the Newbury MP resorting to publishing pump prices on his website to illustrate the 3p - 4p difference between prices locally and further along the M4 in Reading. Market towns further north are now suffering from the postcode price lottery, the cheapest petrol in Mansfield costing below 130p a litre but up to 4p more expensive in Worksop, New Ollerton and Newark, for example.

Comparing brands, Asda and Morrisons are currently tussling for the cheapest fuel position. In the past, supermarkets have been slower to pass on price increases and could hold back average fuel costs for a while.

Vouchers

However, Morrisons’ opening foray with a money-off-fuel voucher at the start of the year suggests that vouchers are again likely to figure large in supermarket fuel pricing this year (vouchers helped Sainsbury boost fuel sale volume by 7.5%, according to last week’s third quarter statement). That would be good news for families who spend £40, £50 or £60 in one go, but not single and lower-income people who don’t and then have to pay higher-than-average prices in non-competitive towns.

Comment

“The irony won’t be lost on hard-pressed drivers and MPs with mailbags full of pump price anger that regulator oversight of gas and electricity wholesale prices has pressured suppliers to produce quick and significant price cuts. Drivers and businesses also need wholesale and pump price transparency urgently,” says Edmund King, the AA’s president.

“This need could come into sharper focus with the rural fuel duty relief scheme, which came into force on 1 January with a 5p-a-litre rebate on petrol and diesel in the Inner and Outer Hebrides, the Northern Isles, the Islands of the Clyde and the Isles of Scilly. Without fuel price transparency, there is no way for drivers to tell whether the full rebate is being passed on or whether retailers or suppliers inflate their margins to take advantage."

With continued instability in the Middle East and other oil-producing regions, drivers should be prepared for short-term price surges this year. These could be softened by the effect of the eurozone’s continuing financial traumas, but last year’s regular oil price swings look set to continue. Additionally, a stronger dollar has weakened the pound’s value in oil and fuel markets and european refinery closures cast a shadow on diesel supply and prices.

Overall, a weak euro has pushed pump prices across the EU to record levels, US gasoline demand is back to 2003 levels, UK petrol sales are down 15% on 2008 and hedge funds lost more than 4% last year. The big question for 2012 may be not how high the price of fuel will go, but to what extent the consumer can afford it.

The Treasury needs to consider the adverse effects high fuel prices are having and should think about extending the freeze on fuel duty until the economy recovers.

Regional

Regionally, Northern Ireland (134.6 p/ltr) has overtaken London (134.4 p/ltr) as the most expensive region for petrol and also charges most on average for diesel (142.8 p/ltr). For the first time in many months, Yorkshire and Humberside (132.5) has lost its position as the cheapest region for petrol to the North (132.4) but still retains the lowest price for diesel (141.2).